12 ★ FINANCIAL TIMES Thursday12 September 2019

COMPANIES

T

he chief executive ofHong Kong Stock

Exchanges nd Clearing might want to bonea

up on his Shakespeare before making any

moreanalogies.Inaconferencecallyesterday,

Charles Li escribed HKEX’s unsolicited bidd

for theLondon Stock Exchange roup as a “corporateG

Romeo and Juliet tory”notwithstandingthedoublesuicides

thatendsthattaleofcourtship.

At first glance the £32bn offer is an audacious attempt

by Hong Kong’s financial overlords to change the former

British colony’s current narrative and present a “business

as usual” face to the world. Asia’s premier financial centre

is entering its fourth month of pro-democracy street pro-

tests and economic gloom is gathering. HKEX manage-

mentshowsamazingchutzpahinannouncingthebidnow.

Thatdoesnotmeanitwillbesuccessful.

AndreaLeadsom,theUKbusinesssecretary,hasalready

promisedto“lookverycarefullyatanythingthathadsecu-

rity implications for the UK” when asked about the pro-

poseddeal.Shewillhavealottoscrutinise.

HKEX’s largest shareholder is the ong Kong govern-H

ment, which appoints six of its 13 board members. Carrie

Lam, Hong Kong’s chief executive, has all but acknowl-

edged that the city’s government is paralysed and unable

to take any significant actions without Beijing’s blessing.

That raises serious doubts that HKEX will be able to argue

that the territory still enjoys a “high degree of autonomy”

fromthemainland.

Meanwhile, the US is considering legislation that would

require regular checks on

whether Hong Kong truly

has separate status and strip

away the privileged trade

and investment treatment

the territory enjoys if it does

not. At a time when anti-

China feeling is already run-

ning high, HKEX will strug-

gle to distinguish itself from

the exchanges in mainland China, all of which are control-

leddirectlybytheChineseCommunistparty.

A CCP-controlled London Stock Exchange would surely

be intolerable for any British government, no matter how

chaoticordesperateBrexitBritainbecomes.

Even if the Hong Kong protests are soon brought to a

peaceful end — a prospect that seems unlikely — greater

integration of Hong Kong into mainland China is expected

to follow. President Xi Jinping cannot tolerate any rebel-

lion on Chinese soil and the city will have to be punished.

That background helps explain the rationale and timing of

this o ffer.Ithasallthehallmarksofanattemptbythecity’s

plutocratstosaveHongKongfromimminentdestruction.

Mr Li, born in mainland China, has worked on an oil rig

in the North China Sea and for state propaganda outlets.

But he has lived in Hong

Kong as a lawyer and banker

for many years and cares

deeply about his adopted

city. HKEX chairmanLaura

Cha rew up in the city butg

served as a member of main-

land China’s rubber-stamp

parliament for a decade. She

renounced her US citizen-

ship to join the central Chinese government as a securities

regulatorwithvice-ministerialrank.

Both are considered highly reliable by Beijing but they

are also are committed to preserving Hong Kong’s special

status as a semi-autonomous jurisdiction with rights and

freedomsnotenjoyedanywhereelseinChina.Iftheyman-

aged to acquire the venerable LSE, the deal might just

makeHongKongindispensableinitscurrentform.

Their task is made urgent by a steady stream of new

preferential measures enacted by Beijing for investors and

mainland cities that erode Hong Kong’s status as a bridge

between east and west. HKEX said the deal was intended

to “reinforce Hong Kong’s position as the key connection

between mainland China, Asia and the rest of the world,

providingatrustedandclearpath”.

The weak pound also makes the price attractive and the

deal could allow HKEX to upgrade its woeful technology

by adopting the LSE’s trading and clearing platforms. A

takeover would also begin to lay to rest the acronym Filth

— “failed in London, try Hong Kong” — that has attached

itself to some of the less reputable financiers who have

migratedtotheterritoryovertheyears.

The question is whether the looming shadow of Beijing

willfoilMrLi’seffortstorewriteShakespeare.

[email protected]

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INSIDE BUSINESS

ASIA

Jamil

Anderlini

Hong Kong plutocrats

hope deal for LSE can

save their territory

HKEX

management

shows hutzpahc

in announcing

the bid now

ST E P H E N M O R R I S— FRANKFURT

Credit Suisse as hiredh Deutsche
Bank’s top European company analyst
and adviser in the latestdeparture
from the German lender as it under-
goesretrenchment.

Kinner Lakhani, who also ran European
financials research for Deutsche, will
join thelender in Zurich this month as
head of strategy and development. He
will report directly toTidjane Thiam,
chiefexecutive.
“Kinner... is among the most
respected voices in the industry,” Mr
Thiam saidyesterday. He “will work
closely with our divisions and corporate
functions as we drive incremental
growth and assess opportunities to

further expand our leading global

footprint.”

Under Mr Thiam, Credit Suisse has

been shrinking its investment bank and

expanding in wealth management, par-

ticularly targeting ultra-wealthy entre-

preneurs in Asia, as part of a strategy to

improvethestabilityofitsearnings.

Mr Lakhani’s departure is another

blow for Deutsche, which has suffered

an exodusover the past few years as its

investment bank struggles to make a

consistent profit and defend its market

position against increasingly dominant

USrivals.

In July the lender announced that it

was closing its entire lossmaking

equity sales and trading operation

but decided to retain its company

research arm to support its capital

marketsbusinesses.

Mr Lakhani became Deutsche’s head

of European research a year ago,suc-

ceedingPaul Reynolds, who left forBNP

Paribas.OtherdeparturesincludeDeut-

sche’stopfinancialinstitutionsadvisory

banker,Tadhg Flood, whoquit o joint

Centerview Partners bout the samea

timein2018.

Deutsche saidGerry Gallagher, head

of European consumer research, would

takeMrLakhani’srole.

Mr Lakhani made his name covering

banks in a two-decade career with stints

atABN Amro,Morgan Stanley nda Citi-

group efore joining Deutsche in 2015.b

He trained as an accountant at the Lon-

donSchoolofEconomics.

Banks

Deutsche’s Europe research chief jumps ship

L AU R A N O O N A N— NEW YORK

Morgan Stanley’s investment bank

continuestosufferfromthe eadwindsh

that hit revenues in the first half of the

year, while its net interest income will

fall thanks to a “dramatically differ-

ent”interestrateenvironment,finance

bossJonPruzansaid.

Speaking at the Barclays financials con-

ference in New Yorkyesterday, Mr Pru-

zan said client activity was down in

equities trading thanks to “a lot of

uncertainty about what’s going to hap-

pennext”ineverythingfromtradewars

totheglobaleconomy.

In fixed income, the credit business is

going well but foreign exchange trading

volumes are at “very low levels” he said,

while in investment banking, new list-

ings are “clearly much slower than they

werelastyear”.

He did not give detail on the expected

percentage rise or fall across divisions

for the third quarter, but the guidance

suggests a worse outcome thanJPMor-

gan, where chief executiveJamie Dimon

yesterdaysaidtradingrevenueswereup

10 per cent year on year while invest-

mentbankingrevenueswereflat.

Morgan Stanley’s investment banking

revenues fell 17 per cent in the first six

months of this year, while trading reve-

nuesweredown13percent.

On net interest income, which domi-

nated other bank executives’ com-

ments,MrPruzanstressedthathisbank

waslessaffectedthanitsrivals.

Mr Pruzan said the bank was now

expecting higher prepayments in its

wealth division, as clients pay back

higherinterestrateloansearlier.

“The shape of the [interest rate]

curve and absolute rates are dramati-

cally different than where they were

back then [at third-quarter earnings],”

he said. “Given where rates are, clearly

pre-payment amortisation is going to

haveanimpact.”

Banks

Morgan Stanley warns of interest rate fallout

PAT R I C K M C G E E— SAN FRANCISCO

The California Senate has passed a bill
that threatens the gig economy model,
making it tougher for the likes of ride-
hailingcompaniesUber nda Lyft oclas-t
sify their drivers as independent con-
tractors.
Assembly Bill 5 was set to head to the
State Assembly flooryesterday, where it
wasexpectedtopass.
If signed into law by Gavin Newsom,
California’s governor, it will take effect
onJanuary1.
Mr Newsom has previously indicated
he would sign the bill if it reached his
desk. However, he told the Wall Street

Journal in aninterview ublishedp yes-

terday that he was still involved in dis-

cussions with Uber, Lyft and similar

companiesaboutapossibledeal.

Shares of Uber and Lyft moved higher

afterhiscomments.

The new law would pose a challenge

for ride-hailing and food delivery

companies, which classify drivers as

independent contractors rather than

employees. That has allowed them to

avoid paying a certain level of wages,

s well as health benefits and paid holi-a

days.

“This is a huge win for workers across

the nation!” said the California Labor

Federation in a tweet. “It’s time to

rebuildthemiddleclassandensureALL

workers have the basic protections they

deserve.”

Bob Schoonover, president of SEIU

California, a coalition of more than

700,000 workers, said the Senate’s pas-

sage“hassetthestageforamajorbreak-

through for workers that are excluded

from basic pay and protections no mat-

terhowhardtheywork”.

The law will not automatically turn

contractors into employees but will

make it more difficult forgig economy

companiestoprovethatworkersarenot

staff.

Still, the uncertainty around the bill

ahead of Tuesday’s vote was enough for

investors to send Uber and Lyft shares

to record lows last week as it became

clear the bill could prompt other states

tofollowsuit.

Uber declined to comment but said it

would respond if the bill passed the

assembly flooryesterday. Lyft could not

beimmediatelyreachedforcomment.

The ride-hailing groups say they are

not opposed to giving their drivers ben-

efits but the “flexibility” of how, when

and where they work is central to their

asset-lightbusinessmodels.

Together withDoorDash, a food-

delivery service, Uber and Lyft have

pledged $90m on a ballot initiative to

seek an exemption from the law. They

arelookingfor“athirdway”tomaintain

flexibilitybutagreeingtosupportthings

such as a “minimum earnings floor”,

sickleaveandpaidtimeoff.

In a blog on August 29, Uber wrote:

“Uber is ready to do our part. That is

whywehavebeenatthetableinCalifor-

nia — with other ride-share companies,

lawmakers, the governor’s office and

labour unions — to propose a truly inno-

vativeframeworkthatwebelievewould

preserve Uber’s key benefit for drivers

(flexibility) and key benefit for riders

(reliability), while improving the qual-

ityandsecurityofindependentwork.”

Support services

California bill challenges gig economy

State set to pass law

bolstering workers’ rights

at groups such as Uber

PAT R I C K M C G E E— CUPERTINO

Apple s the margin-leading premiumi
operatorwhenitcomestosmartphones.
But at its annual hardware launch
event, the iPhone maker unveiled an
aggressive pitch to expand its user base
with new pricing options for the latest
smartphones,iPadsandAppleWatches.
The cost of buying a new iPhone has
been climbing consistently — Apple
unveiled the first $999 smartphone in
2017 followed by a $1,099 version last
year — as the market has matured, and
the company had to find another way of
making up for the gap eft by fewer con-l
sumers upgrading or replacing their
devices. But on Tuesday, Apple’s shift in
strategy was palpable, even as the tech-
nologyimprovementsweremodest.
The company has made a concerted
effort to boost its offering in services,
from music and gaming to movies and
streaming TV, in a bid to ensure existing
customers stick with the iPhone and to
better lure potential customers into its
widening ecosystem. More than 420m

people now subscribe to a range of its
offerings, with Apple Music having
overtakenSpotify n the US for paidi
musicstreamingservices.
“For rivals the only big margin they
getiswhentheysellhardware,”saidBen
Wood, chief of research at CCS Insight.
“But even if you’re using a three or four-
year-old iPhone, Apple is still getting
money from you whether it’s the iCloud
service, or Apple Arcade on games or
Apple TV on content. That’s a pretty
uniqueposition.”
The new products announced, how-
ever, were criticised for only featuring
iterative improvements, and the com-
pany failed to launch a 5G-capable
smartphone.
Apple told fans it was delivering on
promises with huge advances in the
quality of its products, but the pricing of
the new items indicated that the com-
panyhashitaceiling—atleastfornow.
The iPhone 11 Pro Max, the new flag-
ship triple-lens camera device with a
6.5-inch screen, will start at $1,099, the
same entry price as the company’s most
expensive iPhone. This is the first time

in years that Apple has not raised the

priceofitstop-endphone.

More significant, the entry-level

iPhone 11 will start at $699, or $50 less

than the price at which the iPhone XR

debuted a year ago. The cost of the

iPhone 8 has also been cut to $449, a

$150 reduction that highlights how

Appleisexpandingitssmartphoneport-

folio so that its services reach the broad-

estarrayofpeople.

Daniel Ives, analyst at Wedbush, said

Apple had retrenched after a period of

“pricing hubris”. He estimated that one-

third of Phone users planned to buy ai

new smartphone in the next 12 months,

and said Apple was pricing its products

to keep them. In China alone, he said,

there are up to 70m iPhone users

expectedtoupgradesoon.

“The goal is to put an iron fence

aroundtheirservices,”hesaid.

The Apple Watch, which has a 46 per

cent share of the smart watch market,

according to Strategy Analytics, was

also updated, with the Series 5 featuring

an “always on” screen that does not

require a flick of the wrist to show the

time. It starts at $399, while the price of

the older Series 3 model was cut to $199,

from $329 when it launched two years

ago.

“That’s a huge move,” Mr Wood said.

“It’s going to be a freight train of a prod-

uctintheholidayshoppingperiod.”

Apple portrayed its latest iPad as a

laptop replacement with a host of fea-

tures for productivity and gaming. The

10.2-inch retina display iPads have

three times the pixels of the best-selling

laptop and two times the processor per-

formance,Applesaid,andpricesstartat

$329.

The new pricing strategy was most

evident in Apple’s new TV+ streaming

service — to which it has committed

more than $6bn for original program-

ming—andArcade,itsportfolioof100+

games.Both have a four-week trial

period and will then each cost $4.99 a

month — a “crazy” price equal to that of

a single movie rental, said chief execu-

tiveTimCook.

By undercutting the likes of stream-

ing rivals such asNetflix, which charges

$12.99 a month, Apple is expected to

draw in more users and make the pitch

that its TV service will work best on its

devices — even though it is not exclusive

tothem.

“I don’t think anybody was expecting

such an aggressive price point,” said

Carolina Milanesi, analyst at Creative

Strategies. “They make people think,

‘You know what, it’s a cup of coffee at

Starbucks’.”

Sheadded:“Idon’tthinkthere’saneg-

ativebrandconnotationinbeingaggres-

sive on a services price point. With

hardware, especially if you’re Apple,

there’s always a concern about going too

cheap — devaluing the brand — but

that’s not the case in services. Nobody is

going to look at Apple TV+ as a cheap

service;theyjustviewitasaffordable.”

But Apple is still making a clear play

for the premium end: a top-end iPhone

with512GBofmemorycosts$1,449.The

Apple Watch now comes in titanium

models beginning at $799, with a

ceramic model starting at $1,299 and a

refreshed line-up of Hermès edition

modelsrangingfrom$1,249to$1,499.

See Lex

Technology. roduct launchesP

Apple shifts strategy after hitting price ceiling

Push to retain users sees cost

of entry-level iPhone fall and

rollout of $4.99 streaming

Apple’s entry-

level iPhone 11

highlights a

push to reach a

broader range of

customers. The

model starts at

$699, or $50 less

than the iPhone

XR sold for on

its debut last

year —Justin

Sullivan/Getty Images

‘I don’t think there’s a

negative brand connotation

in being aggressive on a

services price point’

‘This is a

huge win

for workers

across the

nation’

California

Labor

Federation

Beijing is steadily

eroding Hong

Kong’s status as a

bridge between

east and west

‘The shape of the [rate]

curve and absolute rates

are dramatically different

than where they were’